Las Vegas, May 21, 2012—This is an IHS
News Flash from information and analytics provider IHS (NYSE: IHS)
covering events on the second day of the 2012 ERAI Executive
Conference.

More than 12 million parts have been involved in
counterfeit incidents during the period spanning the start of 2007
through April 2012, according to Rory King, director, supply chain
product marketing at IHS, citing data from ERAI. King delivered the
news here on Friday to an audience of electronics industry
participants attending the ERAI Executive Conference, co-hosted by
IHS.

In his presentation, King noted that reported
incidents of counterfeited parts amounted to 1,363 in 2011.
However, each incident can include thousands of separate parts,
adding up to 12 million over the past five-and-one-quarter years.
This equates to slightly more than 1 counterfeit part every 15
seconds.

“Last year there was a record number
of counterfeit incidents reported,” King said.
“Altogether, the last five years has seen an all-time
high in counterfeit reports.”

While the rise in semiconductor counterfeiting
is often laid at the feet of China, King noted that the country
actually is not the location where most counterfeits are
reported.

“Companies in two countries accounted
for two-thirds of counterfeit incident reports in 2011,”
King said. “China was actually No. 2, while the United
States was No. 1. The two countries were neck and neck, with China
at 32 percent and the U.S. at 33 percent. So, in terms of
counterfeiting, the enemy is also within.”

The figure below presents the top countries
ranked by location of counterfeit reports.

While the U.S. and China dominate in terms of
reports at a combined 65 percent, the countries of origin
accounting for the counterfeit parts is more disparate, with the
four nations of Malaysia, South Korea, Japan and the Philippines
collectively accounting for 64 percent of reports, according to
ERAI data. However, the accuracy and value of this data is limited,
King noted, given that counterfeiters are highly skilled at
disguising the true origin of their wares.

Obsolete parts: the hidden counterfeit
challenge

For many companies, particularly those in the
defense and aerospace industries, much of the counterfeit risk lies
in obsolete parts.

“Slightly more than one out of every
two counterfeit parts shipped during the decade from 2001 to 2011
are obsolete,” King noted. “Obsolete parts are
where a lot of counterfeit activity is occurring. This underscores
the importance of obsolescence management and lifecycle planning.
Although obsolescence management is critical, more than one-third
of counterfeit incidents are for active components underscoring
that this issue is not exclusively a matter of obsolescence
management. Vigilance in managing continuity of supply is very
important, and companies need knowledge of actual counterfeit parts
that are currently in circulation in the supply
chain.”

Defense against counterfeit

King’s presentation also highlighted
the international impact of new U.S. Department of Defense (DoD)
regulations on foreign suppliers to the U.S. government. The U.S.
National Defense Authorization Act (NDAA), which was signed into
law on Dec. 31, imposes strict regulations and severe criminal
penalties on counterfeits supplied for government military and
aerospace programs.

“The answer to the question of whether
the NDAA counterfeit regulations will impact companies outside the
U.S. is yes,” King noted. “International
companies participate extensively in supplying to the DoD, with the
Middle East accounting for the largest portion. There are thousands
and thousands of suppliers all over the world that are impacted by
NDAA through flow-down. These companies are receiving inquiries on
counterfeit avoidance and need to know how to understand and
accommodate the issues related to fake parts and compliance with
NDAA.”

For more information

IHS provides content, software and expert
analysis about worldwide electronics for component selection,
sourcing, and logistics as well as integrated obsolescence
management, BOM management, environmental compliance and
counterfeit risk mitigation. IHS offers 100 percent of the verified
counterfeit-incident report information, of which more than 90
percent is availed only though the exclusive IHS and ERAI
partnership.

ERAI is a privately held global information
services organization that monitors, investigates and reports
issues that are affecting the global supply chain of electronics.
Since 1995, ERAI has been the industry's primary reporting and
investigation service, providing information and risk-mitigation
solutions to electronics professionals worldwide. ERAI comprises
Original Component Manufacturers (OCMs), Original Equipment
Manufacturers (OEMs), Distributors (franchised and independent),
Contract Manufacturers (CMs), government agencies and associations
serving the industry. For more information, visit www.erai.com/